An Economy-Wide Analysis of Trade Liberalization Impacts on Farm Household Income in Taiwan

Abstract

The impact of trade liberalization on Taiwan’s agricultural sector has been an important issue in policy debates. In this study, a case study of cross-strait trade liberalization is conducted. With the elimination of all tariffs on bilateral trade between Chinese Mainland and Chinese Taipei, the SAM-based computable general equilibrium (CGE) model and database are applied to simulate the impacts of cross-strait trade liberalization on Taiwan’s economy, agricultural output, non-agricultural income, farm household income and employment. Simulation results demonstrate that Taiwan’s GDP will increase by 1.78%, but total agricultural output will decrease by 0.9%. For per farm household income, although agricultural income decreases by NTD 1648, non-agricultural income will increase by NTD 10,580. In total, per farm household income increases by NTD 8,932 with cross-strait trade liberalization. With trade liberalization as the engine of growth and a trade adjustment assistance mechanism at work, economic growth in Taiwan’s agriculture may be maintained and in the long run, non-agricultural income and employment are likely to increase to provide a “safety net” for farm households.